Fixed Asset Accounting 4 th Edition Steven M. Bragg
Chapter 1 Introduction to Fixed Assets... 1 Learning Objectives... 1 Introduction... 1 What are Fixed Assets?... 1 The Fixed Asset Designation... 2 Fixed Asset Classifications... 2 Applicable Accounting Frameworks... 3 Accounting for Fixed Assets... 4 Accounting for Intangible Assets... 4 Accounting for Not-for-Profit Fixed Assets... 5 Fixed Asset Disclosures... 5 Fixed Asset Controls... 5 Fixed Asset Policies and Procedures... 5 Fixed Asset Record Keeping... 6 Fixed Asset Auditing... 6 Fixed Asset Measurements... 6 Chapter Summary... 7 Review Questions... 8 Review Answers... 9 Chapter 2 Capital Budgeting Analysis... 11 Learning Objectives... 11 Introduction... 11 Overview of Capital Budgeting... 11 Bottleneck Analysis... 12 Net Present Value Analysis... 12 The Payback Method... 14 Discounted Payback... 15 Capital Budget Proposal Analysis... 16 The Outsourcing Decision... 17 The Capital Budgeting Application Form... 17 The Post Installation Review... 19 The Lease or Buy Decision... 20 Leasing Concerns... 21 Leasing Advantages... 22 Capital Budgeting with Little Cash... 23 Chapter Summary... 24 Review Questions... 25 Review Answers... 26 Chapter 3 Initial Fixed Asset Recognition... 27 Learning Objectives... 27 Introduction... 27 The Capitalization Limit... 27 The Base Unit... 28 GAAP: The Initial Measurement of a Fixed Asset... 29 Patent Measurement... 30 Interpretive Commentary... 30 GAAP: The Measurement of Assets Acquired in a Business Combination... 31 GAAP: The Measurement of Assets Acquired in a Finance Lease... 31 GAAP: Non-Monetary Exchanges... 32 GAAP: Internal-Use Software... 35 GAAP: Website Development Costs... 37 IFRS: Initial Inclusions in a Fixed Asset... 37
IFRS: Initial Cost of a Fixed Asset... 39 IFRS: The Measurement of Assets Acquired in a Business Combination... 40 IFRS: The Measurement of Assets Acquired in a Finance Lease... 41 IFRS: Non-Monetary Exchanges... 42 IFRS: Website Development Costs... 42 IFRS: Internally Developed Intangible Assets... 43 Chapter Summary... 44 Review Questions... 45 Review Answers... 46 Chapter 4 Interest Capitalization... 47 Learning Objectives... 47 Introduction... 47 Why and When Do We Capitalize Interest?... 47 Assets for Which Interest Must Be Capitalized... 48 Assets for Which Interest Capitalization is Not Allowed... 48 The Interest Capitalization Period... 48 The Capitalization Rate... 49 Calculating Interest Capitalization... 50 Derecognizing Capitalized Interest... 52 Interest Capitalization under IFRS... 52 Chapter Summary... 53 Review Questions... 54 Review Answers... 55 Chapter 5 Asset Retirement Obligations... 57 Learning Objectives... 57 Introduction... 57 The Liability for an Asset Retirement Obligation... 57 The Initial Measurement of an Asset Retirement Obligation... 58 Subsequent Measurement of an Asset Retirement Obligation... 59 Settlement of an Asset Retirement Obligation... 59 Overview of Environmental Obligations... 61 Measurement of Environmental Obligations... 62 Measurement of Environmental Obligations... 62 Recoveries Related to Environmental Obligations... 63 Asset Retirement Obligations under IFRS... 63 Chapter Summary... 64 Review Questions... 65 Review Answers... 66 Chapter 6 Depreciation and Amortization... 67 Learning Objectives... 67 Introduction... 67 The Purpose of Depreciation... 67 Depreciation Concepts... 67 Accelerated Depreciation... 68 Straight-Line Method... 69 Sum-of-the-Years Digits Method... 69 Double-Declining Balance Method... 70 Depletion Method... 71 Units of Production Method... 72 MACRS Depreciation... 73 The Depreciation of Land... 74 The Depreciation of Land Improvements... 75 Group Depreciation... 75 Composite Depreciation... 76 ii
Depreciation Accounting Entries... 76 Accumulated Depreciation... 77 Depreciation Under IFRS... 78 Other Depreciation Topics... 78 Impact on Cash Flow Analysis... 78 Depreciation and Market Value... 78 Chapter Summary... 78 Review Questions... 79 Review Answers... 80 Chapter 7 Subsequent Fixed Asset Measurement... 81 Learning Objectives... 81 Introduction... 81 The Capitalization of Additional Expenditures... 81 Asset Revaluation for Tangible Assets... 83 Asset Revaluation for Intangible Assets... 85 Chapter Summary... 86 Review Questions... 87 Review Answers... 88 Chapter 8 Fixed Asset Impairment... 89 Learning Objectives... 89 Introduction... 89 Asset Impairment Under GAAP... 89 GAAP: Measurement of Asset Impairment... 89 GAAP: Impairment Testing Exemption for Intangible Assets... 89 GAAP: The Impact of Asset Retirement Obligations... 90 GAAP: Measurement of Disposal Losses on Assets Held for Sale... 90 GAAP: The Asset to be Tested... 90 GAAP: Timing of the Impairment Test... 91 GAAP: Accounting for the Impairment of an Asset Group... 91 GAAP: Reversing an Impairment Loss... 91 GAAP: Reversing a Disposal Loss... 91 Asset Impairment Under IFRS... 92 IFRS: The Impairment Test... 92 IFRS: The Asset to be Tested... 92 IFRS: Goodwill and Impairment Testing... 93 IFRS: Corporate Assets and Impairment Testing... 94 IFRS: Timing of the Impairment Test... 94 IFRS: Indications of Impairment... 94 IFRS: Intangible Asset Measurement... 95 IFRS: Determining Value in Use... 95 IFRS: Determining the Fair Value less Costs to Sell... 97 IFRS: Accounting for the Impairment of an Asset... 97 IFRS: Accounting for the Impairment of a Cash-Generating Unit... 98 IFRS: Reversing an Impairment Loss... 99 Chapter Summary... 101 Review Questions... 102 Review Answers... 103 Chapter 9 Fixed Asset Disposal... 105 Learning Objectives... 105 Introduction... 105 Asset Derecognition... 105 The Held-for-Sale Classification... 105 Reclassification from Held for Sale... 108 Discontinued Operations... 109 iii
Abandoned Assets... 110 Idle Assets... 110 Asset Disposal Accounting... 110 Asset Disposal under IFRS... 112 Chapter Summary... 112 Review Questions... 113 Review Answers... 114 Chapter 10 Fixed Asset Disclosures... 115 Learning Objectives... 115 Introduction... 115 GAAP Disclosures... 115 GAAP: General Fixed Asset Disclosures... 115 GAAP: Asset Retirement Obligations... 116 GAAP: Capitalized Interest Disclosures... 116 GAAP: Change in Estimate Disclosures... 117 GAAP: Intangible Asset Impairment Disclosures... 117 GAAP: Intangible Asset Disclosures... 117 IFRS Disclosures... 118 IFRS: General Fixed Asset Disclosures... 118 IFRS: Capitalized Interest Disclosures... 120 IFRS: Change in Estimate Disclosures... 120 IFRS: Estimates of Recoverable Amounts... 120 IFRS: Held for Sale Disclosures... 121 IFRS: Impairment Disclosures... 122 IFRS: Intangible Asset Disclosures... 123 IFRS: Revaluation Disclosures... 124 IFRS: Optional Disclosures... 125 Chapter Summary... 125 Review Questions... 126 Review Answers... 127 Chapter 11 Not-for-Profit Fixed Asset Accounting... 129 Learning Objectives... 129 Introduction... 129 Initial Recognition of Fixed Assets... 129 Restrictions on Contributed Assets... 130 Valuation of Contributed Assets... 130 Valuation of Contributed Services... 131 Valuation of Art, Historical Treasures, and Similar Items... 131 Depreciation of Fixed Assets... 132 Recordation of Fixed Assets... 132 Fixed Asset Controls in a Not-for-Profit Entity... 132 Chapter Summary... 132 Review Questions... 133 Review Answers... 134 Chapter 12 Fixed Asset Record Keeping... 135 Learning Objectives... 135 Introduction... 135 Fixed Asset Accounts... 135 Construction Project Record Keeping... 137 Building Record Keeping... 137 Equipment Record Keeping... 139 Land Record Keeping... 140 Lease Record Keeping... 141 Operating Lease Record Keeping... 141 iv
Finance Lease Record Keeping... 141 Document Retention... 142 Fixed Asset Reports... 142 Depreciation Report... 142 Audit Report... 144 Responsibility Report... 145 Asset Replacement Report... 145 Maintenance Report... 146 Chapter Summary... 147 Review Questions... 148 Review Answers... 149 Chapter 13 Fixed Asset Controls... 151 Learning Objectives... 151 Introduction... 151 Controls for Fixed Asset Acquisition... 151 Controls for Fixed Asset Construction... 152 Controls for Fixed Asset Theft... 153 Controls for Fixed Asset Valuation... 154 Controls for Fixed Asset Depreciation... 154 Controls for Fixed Asset Disposal... 155 The Control of Laptop Computers... 155 Chapter Summary... 156 Review Questions... 157 Review Answers... 158 Chapter 14 Fixed Asset Policies and Procedures... 159 Learning Objectives... 159 Introduction... 159 Capital Budgeting Policies and Procedures... 159 The Capital Request Form... 161 Asset Recognition Procedures... 162 Asset Revaluation Policies and Procedures... 164 Asset Exchange Policies and Procedures... 165 Depreciation Policies and Procedures... 165 Impairment Policies and Procedures... 167 Asset Retirement Obligation Policies and Procedures... 168 Intangible Asset Policies and Procedures... 168 Transfer Policies... 169 Disposal Policies and Procedures... 169 The Asset Disposal Form... 170 Record Keeping Policies... 171 Tracking Policies and Procedures... 171 The Fixed Asset Manual... 172 Chapter Summary... 173 Review Questions... 174 Review Answers... 175 Chapter 15 Fixed Asset Tracking... 177 Learning Objectives... 177 Introduction... 177 Tag Tracking... 177 Bar Code Tracking... 178 RFID Tracking Active Transmission... 178 RFID Tracking Passive Transmission... 179 Wireless Monitoring... 179 Chapter Summary... 179 v
Review Questions... 181 Review Answers... 182 Chapter 16 Fixed Asset Measurements... 183 Learning Objectives... 183 Introduction... 183 Sales to Fixed Assets Ratio... 183 Repairs and Maintenance Expense to Fixed Assets Ratio... 184 Accumulated Depreciation to Fixed Assets Ratio... 185 Cash Flow to Fixed Asset Requirements Ratio... 186 Return on Assets Employed... 186 Return on Operating Assets... 187 Bottleneck Utilization... 188 Unscheduled Machine Downtime... 189 Chapter Summary... 189 Review Questions... 190 Review Answers... 191 Chapter 17 Fixed Asset Auditing... 193 Learning Objectives... 193 Introduction... 193 Fixed Asset Audit Objectives... 193 Fixed Asset Audit Procedures... 193 Auditor Requests... 195 Chapter Summary... 197 Review Questions... 198 Review Answers... 199 Appendix Journal Entries... 201 Glossary... 205 Index... 209 vi